Category: Family Offices

will
Family OfficesWealth Management

Disputing A Will: Key Considerations

will

Disputing A Will: Key Considerations

By Monika Byrska, Partner at Thomson Snell & Passmore

As a jurisdiction England and Wales is proud of its testamentary freedom.   Anyone can make a Will and in their Will leave whatever they own to whomever they want.   Not far away from us geographically, in the Channel Island of Jersey, testators can truly freely dispose of only a third of their estate.  Two thirds of their estate will be distributed to their closest family, whether they like it or not.   Similar “forced heirship” provisions exist in most continental jurisdictions.  We are not so restricted in England and Wales.  We can leave all we have to our favourite child, the “cats’ home”, or a neighbour.  However, are we as unfettered in our freedom as we think? 

Research published by Direct Line Life Insurance in 2018 suggested that over 12.6 million Brits would be prepared to go to Court to dispute a Will of a family member if they disagreed with the division of their estate.   Apparently, inhabitants of Southampton are most likely to dispute their loved one’s Will (31% of those surveyed).   They are closely followed by Londoners (29%) and Brighton residents (26%).   When it comes to contesting a partner’s Will, Brighton tops the tables – 16% of those surveyed would contest their partner’s Will if they were disappointed by it.   If the law gives us testamentary freedom, how and why can people argue over the provisions of our Will? 

Looking at my own practice, it seems to me that one of the most common reasons for people to have concerns over Wills is an allegation of undue influence.  Though in practice, evidentially, it is one of the most difficult grounds on the basis of which one can pursue a Will challenge, the concern that a Will was signed only because of the influence of the evil sibling, greedy carer or child, are stories I hear most often.   These cases are difficult, as how do you gather evidence of coercion that forms the basis of undue influence? By its very nature, coercion is always carried out in private, shielded from the prying eye of others, even those closest to the victim.  At the same time, because undue influence will often be tainted by a history of mental or sometimes physical abuse of the victim, when discovered, it is very difficult to just let it pass.  Undue influence challenges are often not cases only about the money, but about justice, which those close to the deceased wish to achieve. 

The second most common ground for Wills being challenged is an allegation of lack of capacity, i.e. a situation where the person making the Will was not of sound mind.   Does mental illness or neglect mean we cannot make a Will?  It need not do. However, for those disappointed by a Will, an insinuation that the deceased could not have possibly known what they were doing, because they were elderly, showing signs of dementia, will be enough to spark up a Will dispute. That is why it is so important that Wills, especially those which are likely to come as a disappointment for friends and relatives, and those prepared for the elderly or vulnerable, ought to be prepared professionally.    

In addition to the two most common grounds, Wills may be challenged on the basis of lack of knowledge and approval or lack of proper formalities (i.e. being wrongly signed or witnessed). Estates may also be challenged under the Inheritance (Provisions for Family and Dependants) Act 1975 by closest family: spouses, partners, children and dependants for whom “sufficient provision” in a Will has not been made.    

Despite the testamentary freedom we like to boast about, there are therefore legal routes allowing us to try and change the provisions of the Will of our loved one, after their death.  The trend is only upwards.  Looking at official court statistics the increase in the number of probate cases issued in the Business and Property Court of England and Wales was 24 % in 2017 (when compared to 2016), 30% in 2018 and 18% when comparing the first three quarters of 2019 with the same period in 2018. 

Millions of pounds are being spent on such disputes.  The financial and emotional burden that they bring on those bereaved may be reduced only if you involve a specialist early on; someone who will have the required experience, but who will also be ready to provide you with their honest, emotionally detached from the family feud, opinion. Law does create possibilities to impact how wealth will be distributed post-death.  However, those possibilities are limited and the courts will defend the English principle of testamentary freedom.  There are no better words to summarise the position than those of Deputy Master Arkush in one of his judgments (Rea v Rea [2019] EWHC 2434 Ch):

 “On one level it is understandable that the defendants feel disappointed, upset and resentful that they have not benefited from their mother’s will. In my judgment they have allowed these emotions to override a more considered reflection (…)[It] is not my task to decide whether the 2015 Will was justified or fair. I am only required to decide if it is valid…”

mediation
Family OfficesLegal

Keeping Divorce Out Of Court: Why Mediation Matters

mediation

Keeping Divorce Out Of Court: Why Mediation Matters

By Kirstie Law, at Thomson Snell & Passmore

People are increasingly looking to facilitate a smoother and faster divorce by keeping it out of court.  As such, former couples are turning to mediation as a way of resolving the issues arising from their separation (including financial and child arrangements).

Mediation can provide real benefits in appropriate cases. It reduces tension and hostility and helps couples make their own informed decisions about their futures. The process involves the couple working with normally one mediator, (but in some cases two mediators/co-mediators,) who encourages them to come to a solution that works for them both and their children.  The mediator is impartial, but will give the couple information as to the law and, for example, how in his or her experience the court might deal with a particular issue.

 

Children and mediation

With Children Act proceedings, if the case is being decided by a judge, he or she will want to know what is in the best interests of any children concerned.  This is often achieved by the court appointing a CAFCASS officer who normally visits any children with each parent before preparing a report, including recommendations for future child arrangements.

Some mediators are qualified to see children as part of the mediation process.  Having had an initial meeting with the parents, (who both have to agree to the mediator seeing any children) the mediator will then have a meeting with the child(ren) without the parents, although another adult will be present.  Having seen the child(ren), the mediator will report back to the parents any points that have been specifically agreed with the child(ren). If the child(ren) asks for some things not to be repeated to the parents the mediator MUST respect this.  The only exception to this confidentiality is if the child(ren) discloses he/she or another child is at risk of harm, in which case the appropriate referrals, e.g. to social services, is made.  This is explained to the child(ren) at the start of the process. 

The mediator will make an effort to ensure that the environment is relaxed, including providing appropriate child friendly refreshments. The child(ren) will also be given the opportunity to doodle or draw a picture.  Most mediators will also write to the child(ren) in advance of the session (in a way that is age appropriate) inviting them to attend. 

It is important to emphasise that the child(ren) is/are not being asked to decide what will happen, but told that mummy and daddy want to know what the child(ren) feel(s) about the current situation and any suggestions the child(ren) has with regard to arrangements going forward.

The feedback from both children and parents who have been involved in mediations where the children have had direct involvement and the opportunity to discuss issues with the mediator is extremely positive.  Mediation can be concluded very quickly enabling the whole family to move on and hopefully the parents to co-parent more successfully.

 

Finances and mediation

With financial proceedings, if the case is being decided by a judge, he or she will have quite a wide discretion as to what settlement is appropriate in any given case.  This can make it very difficult to predict the outcome with potentially thousands of pounds being spent obtaining an order that no one is happy with.  The mediation process can take into account the priorities of both (e.g. one wanting to keep the house, the other a pension) and consider whether a clean break settlement is the best solution.  It is arguably far easier to live with a settlement into which you have had input than one that has been imposed on you.

The mediator will want both to provide financial disclosure but the couple can decide when, and for what period, this is provided (the court process requires bank statements for a year but if the decision to separate is mutual and recent the couple can in mediation agree a shorter period).

It is normally possible to have a first mediation appointment within a week of the mediator speaking to both.  By contrast the first court hearing is normally three or four months after the court processes the application.

The mediation process is therefore normally significantly quicker and cheaper, and usually improves rather than damages the couple’s relationship, hopefully making future co-parenting easier.

 

Shuttle mediation

Shuttle mediation is a form of mediation where, instead of the former couple being in the same room as the mediator, they are in separate rooms and the mediator effectively shuttles in-between. 

Shuttle mediation can be used in cases where mediation is not appropriate because one or both of the former couple, for whatever reason, do not feel comfortable being in the same room.  This could for example be due to past coercive or controlling behaviour, or if one person is still finding it difficult to come to terms with the end of the relationship.

The potential disadvantage of shuttle mediation is that there is inevitably a duplication of costs because the mediator has to repeat what has been said by the other person.  There are also usually advantages to having the discussions directly, but in the presence of an independent mediator.  Witnessing these discussions directly can enable the mediator to assist with improving communication going forward particularly if, for example, there is a need for future co-parenting.

Ultimately the most important thing with regard to mediation is that both feel comfortable to discuss issues openly with the mediator and do not feel pressurised as a result of the other person’s presence. 

Shuttle mediation can be used for the whole of the mediation process or just to deal with a particular issue that the parties feel would be easier to discuss if they are not in the same room.

 

Final thoughts

The breakdown of a relationship can be a painful and difficult time for all involved. By opting for mediation, it is possible to help mitigate the stress of a divorce or separation, by making the process smoother and faster, and helping to ensure an outcome that works for everyone.

aspen
BankingFamily OfficesPrivate Banking

Emotional Economics: The Challenges of Mixing Love and Money in Family Businesses and Legacy Families

aspen

Emotional Economics: The Challenges of Mixing Love and Money in Family Businesses and Legacy Families

Thirty years ago, the family business started by Daniel’s grandfather and great uncle was sold. Daniel and his three siblings received nearly sixty million US dollars each, as did each of their cousins. In 2016, Daniel, who had created a successful real estate and development business and on the advice of his financial and tax advisors, transferred to his four adult children twenty-five million US dollars each. The age range for the adult children spanned nine years, and one daughter worked in Daniel’s business. From the day gifting was announced it has resulted in family disruption. The surface discord resulted from a perceived economic injustice concerning “the time value of money” since all siblings received an equal share rather than a share based on their age. But the deeper disharmony stemmed from an unresolved historical emotional impasse between the father and one of the adult children dating back to the child’s teenage years. 

As Aspen Consulting Team, (ACT) we help members in family businesses and legacy families address the psychological dynamics of love and money, the interplay between emotions and economics, in the family system. 

Love and money are symbiotic and immiscible. They are connected, but do not mix naturally. The wrong mixture results in entitlement, disruption, and conflict; the correct mixture results in gratitude, opportunity, and resilience. The wealth connection in a family business and/or legacy family requires
Emotional Economics: The Challenges of Mixing Love and Money in Family Businesses and Legacy FamiliesMar19081
adult children to stay integrated in their family of origin much longer than typical families. The financial interdependence provides great benefits and at the same time creates complexities. A basic operating principle in our work is that the deeper the economic interconnections the higher the potentiality for emotional conflicts.

Every family business and/or legacy family is a system, a combination of small subset systems (individuals) connected to mid-size systems (family units), nested within larger systems (extended and generational family units), and linked to much larger systems (business and wealth management). Everything is connected and influenced by everything else. Within this system transitioning wealth takes place at two levels where the highest goal is to provide an inheritance without creating entitlement. 

• The “external” work is wealth creation and management. The task of continuing the vision set by the founders, operating with the values that made the family successful in the first place, protecting assets, defining financial goals, policies, and strategies, adjusting to taxes and market changes, understanding investments and ROI, implementing shareholder agreements and distributions, creating foundations and estates, and increasing the financial portfolio. Legal and financial advisors help with this work.
• The “internal” work is relationship harmony and management. The task of connecting and inspiring family members, strengthening the family culture, adapting to generational values, maintaining agreements, managing interpersonal stress, working as a team, responding to special demands, and enjoying the process as members of each generation face opportunities and transitions. This is the space in which ACT works.

There are always two parallel objectives in our work. The first objective is to create guidelines to “prevent the emotional tail from wagging the economic dog.” The second objective is to “not cut off the emotional tail.” Emotions, when accessed correctly, are powerful guides and cannot be ignored without damaging relationship harmony and overlooking important decision-making data. There are more emotions in an economic experience than meets the mind’s eye.

Emotions are actions, many of them are public and visible to others as they are expressed in body language or are verbalized. Feelings, on the other hand, are always hidden, unseen and perhaps unrecognized, to anyone other than their rightful owner. Feelings are the most private property we own. Emotions precede feelings, much to the common mistaken view. “We have emotions first and feelings after because evolution came up with emotions first and feelings later.”2 We, and our emotional system, are designed to solve the basic problem of how to continue life by being either competitive or cooperative and on the economic survival level this involves money. 

A study conducted with children, ages 3 to 6 years, showed that they did not understand the economic value of money, but they comprehended its emotional value. The first group sorted coins and banknotes, while the second group sorted buttons and candy. The children who worked with money demonstrated an increase in egotistical behaviors, were less eager to help the researchers, corralled more awards for themselves, were less likely to share their rewards with the other children, but were more persistent in completing individual tasks. Handling money reduced feelings of helpfulness and generosity while increasing perseverance and effort. These results are very similar to the results of a comparable study that looked at adult behavior. According to Agata Gąsiorowska, economic psychologist and a coauthor of the study:3

“Money is such a strong symbol in the world based on economic exchange that even small children are influenced by its significance. Money causes people to switch from the view of the world that values close relationships to the world that values market exchange, where the notions of ‘me’ and ‘my gain’ are in the center.”

Emotions, often considered “gut feelings” or conscious experience, really involve many systems
within our brain. Emotions create a burst of activity devoted to one thing, survival. Emotions trump non-emotional events, like thought, reason, and decision-making, even in the most rational analyst and business leader, because they are older in the human developmental process than economics. Emotions kept our ancestors alive long enough to create and give us an inheritance. Emotions, even those in our memory system, trigger certain features, feelings, and stimuli that are designed for homeostasis. 

Homeostasis is a self-regulating process by which our biological and psychological systems try to maintain stability while adjusting to conditions that are optimal for survival and success. In love and war, as in family and business, when homeostasis is successful, individual and collective life continues and flourishes. There are “natural triggers” like the sight, sound, and smell of a predator and “learned triggers” like the sight, sound, and smell of money that aid us in the pursuit for homeostasis.4

About 10,000 years ago, when the first farmer created more than his or her family could consume, the economy of the marketplace began. Before the agricultural age, our ancestors were daily hunters and gatherers, collecting and consuming without the ability or surplus to “store up” resources. When farmers took their extra bags of gain to the marketplace they needed a symbol of exchange. In time, this symbol became money. 

From that time forward, there are few interactions or decisions in a legacy family that do not involve money and a drive for the family to flourish. The recent college admission scandal in the United States is a brazen example. 

Money is an emotional trigger in families and how we react to it may be either positive or negative. In order to have a positive environment, family leaders must work toward stability between two social systems that continuously change as individuals change. The two social systems are the homogeneous system of being similar, the drive for family unity, and the heterogeneous system of being dissimilar, the drive for personal autonomy. These systems create interpersonal tension and ambiguity, along with creativity and drive that must be anticipated and proactively managed in a legacy family and family business. Wishing that anxiety or conflict would depart the family system or that love and harmony would show up is usually not enough. 

The tension among family members is from four psychological positions; Fight, Flight, Freeze and Flow . Three positions, Fight, Flight, and Freeze , are an extension of our evolutionary survival system. The fourth area, Flow, is the way to happiness and success.5 It requires psychological awareness, behavioral adjustment, and positive action on the part of family members and leaders and is difficult to create and maintain as family members grow and change.

• Fight: When both personal confidence (autonomy) and relationship security (unity) are low, one’s psychological position is hostile-dependent. This shows itself in behaviors of “moving against” others in the family or family system. The feelings and behaviors expressed are often confusion, anger, resistance, and opposition.

• Freeze: When personal confidence (autonomy) is low and relationship security (unity) is high, one’s psychological position is co-dependent. This shows itself in behaviors of “moving in” with others in the family or family system. What we often see is enmeshment, clinginess, entanglement, low selfesteem, fear, and anxiety.

• Flight: When personal confidence (autonomy) is high and relationship security (unity) is low, one’s psychological position is counter-dependent. This shows itself in behaviors of “moving away” from others in the family and/or family system. This is seen in acts of isolation and detachment, which can look like independence, if it were not for the financial dependence. 

• Flow: When both personal confidence (autonomy) and relationship security (unity) are high, one’s psychological position is inter-dependent. This shows itself in behaviors of “moving with” others in the family and/or family system. This is experienced as cooperation, maturity, accountability, and resilience. This, of course, is the most optimal position for family members.

For economic success and relationship harmony within a legacy family or family business, family members must purposefully address emotional historical impasses, resolve sibling rivalries, find comparable values, and work toward mutual goals. The psychological tools for doing this work are what we have termed “thick trust” and “mature adult communication.” 

Long-term success in family and business life requires a willingness to trust one another. The question is how we measure the trust. Scientific research shows that most people’s accuracy in discerning if another person can be trusted is imprecise. Much of the time, we have weak or no guidelines other than a set of emotional clues we have used in the past. Trust is dynamic—not static. The more we have at risk, the greater the need for trust. It is helpful to think of trust in three levels.6

1. One-Way Trust. Only one person has trust on the line. If the other person cannot be trusted to follow through on promises or commitments the relationship ends, as do any potential gains or losses. 

2. Mutual Trust. This is a reciprocity style, often called quid pro quo and “tit for tat,” for regulating equilibrium in transactional relationships. It is the most familiar type of trust in business, worked out among and between the same parties over a long period of time. Both parties play the roles of giver, taker and matcher, and exchange these roles for mutual benefit. When trust is broken, the relationships and transactions end.
3. Thick Trust. This is the highest form of trust and is required for family members to work together for the long-term. Family business relationships are complex because they occur across different settings and include a diverse series of interactions, both personal and professional. Action at one level may have ramifications at other levels, and every action has the potential for benefit or harm. Trust at this level, like in a marriage, requires the strength, resilience, and skill of mature character to overcome and forgive mistakes. 

Trust and trustworthiness are forms of social and relationship capital. A subjective way to think about your trustworthiness or that of another person in a family business is the following formula. Personal Character plus Competency Skills divided by Self-Interest plus Psychological Awareness plus Behavioral Adjustment determines Thick Trust.  

TT=[(PC+CS)÷SI]+(PA+BA)

A solid foundation of trust allows communication to be clear, constructive, and proactive, what we call Mature Adult Communication (MAC). We suggest that family members have a formal agreement to use MAC when important economic and emotional decisions need to be made. The first step in MAC is to clearly define the issue. Much of what is called “failure to communicate” is not having a clear and collective understanding of the problem or issue. The second step is to explore all the psychological dynamics, emotions, and feelings around the issue. This is often the hardest step and may require outside consultation. The third step is to have full commitment by all family members involved in the issue to the decision-making process (who, how, and when a decision will be made) and to make a clear and firm decision, with an evaluation process if necessary.

MAC eliminates what statistician and author Nassim Taleb calls narrative fallacy, “ a wrong ruler will not measure the height of a child. ”7 This is how we fool others and ourselves by a flaw in a story of the past, often emotional, which shape our decisions for the future. An accurate diagnosis of the problem sets the stage for the correct treatment. Decisions that address the wrong description of the situation can be made with a high level of determination, confidence, and authority, but will still be defective and require correction at a later time with greater expense. 

Creating, managing, and transitioning wealth within a family is a balancing act. It requires addressing the struggles not only among and between individual family members, but the tension created by money. The connections from our emotional system to our cognitive system are stronger than the connections from our cognitive systems to our emotional system. If this were not true, Daniel’s adult children would not have entered into the discord that has alienated and estranged family members.

aspen
Thomas Edward Pyles, MA & Edgell Franklin Pyles, PhD

Edgell and Tom, a father and son team, consult with family businesses on leadership strategies, particularly succession, and with legacy families on the complexities of mixing love and money. They are the co-authors of MAPS for Men: A Guide for Fathers and Sons and Family Businesses. Fourth generation business owner Charles S. Luck, IV, wrote, “MAPS for Men is one of the most comprehensive guides to families in business that I have ever seen.”

“Edgell and Tom weave a tapestry of insight for anyone seriously interested in building family relationship bridges that endure generational transitions.” Dennis Carruth, President, Carruth Properties Company. 

“I have clearly seen results. In all cases it is an inflection point to a fresh and positive perspective.” Chris Branscum, Family Office Advisor, JD, CPA.

“I have worked with Edgell for more than twenty-five years. He has provided counsel to our family, including our two adult sons, my business, and my YPO group.” James Light, Chairman, Chaffin Light Management Company. 

“Our family legacy is now in the fifth generation. I truly appreciated Edgell and Tom’s work. The lessons learned will bear fruit for many years and generations to come.” David Hardie, Founder and CEO, Hallador Management, LLC.

“The psychological and spiritual counsel offered by Edgell and Tom has proved very helpful to my family and business.” Jeff Wandell, Founder and CEO, Prairie Gardens and Jeffrey Alan’s. 

“Dr. Edgell came into my life in a time when I had failed and did not like myself in many ways. He helped me, at the age of 58, on a new journey of bliss.” M. Ray Thomasson, PhD, President, Thomasson Partner Associates, Past President, American Association of Petroleum Geologist, Past President, American Geological Institute.

“Edgell enriches lives of those he touches in a most profound way.” Paul Schorr, Past President, Chief Executives Organization.

Sources:

1. Erik Erickson, Identity, Youth, and Crisis.

2. Antonio Damasio, Looking for Spinoza: Joy, Sorrow and the Feeling Brain.

3. The study was conducted by an international research team, including: Agata Gąsiorowska, Tomasz Zaleśkiewicz, and Sandra Wygrab, SWPS University in Wrocław, Lan Nguyen Chaplin, University of Illinois, and Kathleen D. Vohs, University of Minnesota.

4. Joseph LeDoux, The Emotional Brain, The Mysterious Underpinnings of Emotional Life.

5. Mihaly Csikszentmihalyi, Flow, The Psychology of Optimal Experience.

6. Elinor Ostrom and James Walker, editors, Trust & Reciprocity, Interdisciplinary Lessons from Experimental Research.

7. Nassim Taleb, “A Map and Simple Heuristic to Detect Fragility, Antifragility, and Model Error.”

divorce
Family OfficesHigh Net-worth IndividualsReal Estate

Divorce: Jurisdiction and Financial Relief Applications

divorce

Divorce: Jurisdiction and Financial Relief Applications

By Stephanie Kyriacou, associate in the family team at law firm, Shakespeare Martineau.

Many high-net-worth individuals (HNWI) lead truly international lifestyles, travelling the world, owning multiple residences and holding assets all across the globe. However, whilst this internationally-mobile way of living certainly has its benefits, for couples navigating the emotional process of divorce, dealing with multiple legal jurisdictions can often cause issues, particularly if one side of the divorcing party has been unfairly treated by the foreign courts.

Luckily, if an individual believes that they have suffered financial hardship as a result of a financial order in a foreign jurisdiction, there may be an avenue which they can pursue to balance the scales, provided by the English and Welsh courts. The UK’s legal system has long been considered one of the most fair and agreeable around the world in terms of settling financial matters upon divorce, and there is a reason why London itself is known as the ‘divorce capital of the world’.

Sadly, the foreign courts are often not as generous as their English and Welsh counterparts and the disparity between the sums awarded can often result in extreme financial hardship for spouses who get the raw end of the deal.

This access to financial relief in the UK revolves around Part III of the Matrimonial and Family Proceedings Act 1984 (MFPA 1984). This act allows spouses who have been divorced overseas, and who have a proven connection to the UK, to access financial remedy in the UK, if they have been treated unfairly by foreign courts and have exhausted all avenues to correct that unfairness in that overseas court.

However, whilst this piece of legislation can offer a lifeline to those individuals who have not received adequate financial provision in an overseas jurisdiction, there are a number of criteria which need to be met before an application can be made under Part III of the MFPA 1984. The application itself is a two-stage process and the applicant must first apply for permission (leave) to make the application. The factors the court will examine when determining whether to allow an application to proceed to the second stage can be found in sections 15-16 MFPA 1984. If the applicant is successful at the first stage, they will proceed onto the second stage, whereby they will go on to make the substantial application for financial remedy.

When determining whether to make an order, the court will base its decision on the connection that both parties to the marriage have with England and Wales, and with the foreign court, as well as any financial benefit which the applicant or a child of the family has or will receive as a consequence of the foreign divorce. Other factors which will be considered include any rights that the applicant has, or has had, to apply for financial relief from the other party under the foreign court – including reasons why they may not have done – as well as the availability of any property in England and Wales and the extent to which an English order will be enforceable, along with the elapsed time since the foreign divorce.

Whilst putting the wheels in motion as soon as possible after the foreign divorce has been granted is preferable, the case of Z v Z [2016] EWHC 911 is authority that even with a five-year delay, a court will still consider an application if the other criteria are met.

Whilst the requirements for making at Part III application may seem quite complex, at face value they centre on being able to evidence a strong link to the UK, either through residency or assets. The case of Agbaje v Agbaje [2010] UKSC 13 is the leading authority in this area and a provides a good illustration of how a Part III application for financial relief can be made, and what the courts will be considering when choosing whether to grant an application. In this case, the husband and wife were Nigerian and had been married for 38 years, with assets totaling circa £700,000, much of which were tied up in two London properties. All five of their children were born in London and the couple had spent large chunks of their life in England. Despite the wife living in London, the husband applied for a divorce in Nigeria and his wife was awarded £86,000 worth of property assets in Lagos, and £21,000 as lump sum maintenance payment. Not happy with this financial award, the wife issued proceedings under Part III of the MFPA 1984 and was awarded 39 percent of the couple’s total assets, allowing her to carry on her life in London.

This is a relatively common situation which is experienced by a large number of the spouses of HNWIs, but should give hope that in the event of hardship or mistreatment in divorce proceedings handled by a foreign court, there is a safety blanket offered by the MFPA 1984. Whilst many high-net-worth individuals will have factored pre-nuptial agreements into their marriages, which include clauses dictating where they would like their divorce heard in the event of a relationship breakdown, some will not, and it is those who the English and Welsh legal system supports through this channel.

Inheritance Tax
Family OfficesIndirect TaxInheritance TaxReal Estate

Number Of Retail Investors Seeking IHT Advice Set To Rise

Advisers highlight expected increased use of flexible IHT solutions for clients

More than three out of four (78%) financial advisers expect the number of retail investors seeking help for IHT planning to increase over the next three years, according to new research from TIME Investments, which specialises in tax efficient investment solutions.  The findings come as IHT receipts hit a record £5.2 billion in 2017-18 despite the introduction of an additional nil-rate band.

Six out of ten (63%) advisers also predict an increase in the number of IHT products and investment solutions to be launched in the UK.  However, whilst this will offer more choice to investors, it also comes with a health warning – 88% of advisers questioned are concerned that new products will be launched by firms that don’t have the appropriate track record and/or expertise.

Two thirds of advisers predict an increase in the use of Business Relief (formerly known as Business Property Relief) over the next three years to help people reduce their IHT liabilities.  To encourage investors to support UK businesses, the Government allows shares held in qualifying companies that are not listed on any stock exchange and some of those listed on AIM to qualify for Business Relief. This means that once owned for two years, the shares no longer count towards the taxable part of an inheritable estate and are free from inheritance tax at point of death.

The accessibility of Business Relief investments and the range of investment opportunities available help to provide flexibility in IHT planning.  Three quarters of advisers felt that the increasing use of Power of Attorney due to rising dementia rates would contribute to the growth in the use of these flexible IHT solutions.

Henny Dovland, TIME Investments’ IHT expert comments: “The number of families in the UK being caught in the IHT net is increasing.  This represents a significant opportunity for advisers specialising in IHT and intergenerational planning and is reflected in our findings that reveal more specialist products are set to be launched in this market. However, care needs to be taken to ensure any new solutions are fit for purpose.  Our specialist team has a track record of over 22 years in this complex area.”

For further information on TIME Investments and its range of products, please visit www.time-investments.com

Man About Town
Family OfficesWealth Management

Man About Town

Founded by Andrew Heiberger in 2010, Town Residential has cemented its position as New York’s foremost luxury real estate services firm with an exhilarating foundation and seamless execution of best-in-class customer service by an unparalleled team of more than 500 Representatives and professionals strategically located in ten prime Manhattan, Brooklyn and Queens locations.

Town Residential boasts a unique fully integrated luxury real estate platform and specializes in luxury residential sales; leasing; the marketing, sales and leasing of property developments; commercial and retail. With uncompromising principles, Town Residential has established a new standard of excellence within the industry.

At all price-points, Town Residential implements a hand-crafted approach to the marketing of sale and leasing properties with unequalled distribution online and in print; through press and events; and industry syndication. Town Residential’s innovative platform extends beyond traditional print and digital exposure. We have cultivated strategic relationships and focused on events that provide our Representatives with personal access to thought leaders, trendsetters, and tastemakers.

Debra Stotts, licensed Real Estate Broker specializes in luxury property in New York City, with deep-rooted expertise in – and a passion for – the vibrant, international Midtown East neighborhood. Her credentials include unparalleled knowledge of the iconic, award-winning residential building, 845 United Nations Plaza.

Debra has consistently been a leading broker at Town Real Estate. With over $550 million in transactions, her success is the result of 25 years of experience, immersive market intelligence, a history of providing exceptional service, and – especially – the strength of the client relationships she has built on mutual understanding, respect, and trust.

Whether buying, selling, leasing, or managing, Debra’s focus is on her clients; her clear-headed guidance and tireless work ethic ensure that their goals – whether financial or personal – are achieved. She has been entrusted to transact real estate for investors around the globe and for families making their first home purchase, for foreign governments, relocating executives, international institutions, diplomats, downsizing empty nesters, and everyone in between.

Debra firmly believes that Midtown East offers the best value for a NYC investment – so much that she makes her own home here. Ask and she’ll tell you about the hot restaurants, the different parks, and where to go for the best artisanal pastries. She can tell you about the history of the international. Turtle Bay neighborhood and who’s lived there, about the stunning, protected views from 845 United Nations Plaza -and about its inner workings. Informed by her seven years as the onsite sales and leasing director, she knows the building intimately and firsthand.

Drawn to neighborhoods that, like Midtown East, offer nearby parks and water views – a respite from the city bustle – Debra previously worked in on-site sales for luxury properties in Battery Park. Prior to that, she built her real estate business helping to relocate United Nations Representatives to New York. Early in her career, in the days of luxury flying, Debra was a TWA flight attendant, a job she credits for instilling in her the value of providing top-quality, exemplary service.

A Manhattanite since she was in her early 20s, Debra raised her family and nurtured friendships here. From the tranquil early mornings to the rush of the workday to the throbbing pulse of the nightlife, she relishes the city’s changing energies. She enjoys the multi-cultural foods and experiences and the easy access to Broadway Theater, to the world’s best museums, and to Central Park. Debra especially cherishes the striking view from her own home, which overlooks the vast and varied East River.

10 Relationship Challenges in Family Businesses and Legacy Families
Family OfficesWealth Management

10 Relationship Challenges in Family Businesses and Legacy Families

At Aspen Consulting Team (ACT), we work with family businesses and legacy families as they walk the balance beam between love and money, socio-emotional wealth. Using a metaphor from the golf course—we go into the deep weeds and thicket of family dynamics and get the ball out to the short lgrass—so family members and their financial and legal advisors can move it forward. We work with family businesses and legacy families at the top 1% financial level.

The organizing principle in our consultation, including work with our colleagues David Bork and Dr. Will Bledsoe at Family Business Matters Consulting, is based on the Biblical message— build before the rain, from the story of Noah. There will be “rain” in a family business and a legacy family. We believe four pillars—alignment, boundaries, communication, and competence—provide a framework for building strategy, synergy and structure for managing the relationship challenges and conflicts in a family business and legacy family.

Over the years, we have worked for family businesses with 5 employees to over 15,000 employees and legacy families with $50 million to $5 billion in assets under management. At the ownership level, the relationship dynamics are very similar. It is first about trust, then alignment, boundaries, communication and competence at the ownership, family and management levels.

Recently, we helped a third generation (G3) family business transition to the fourth generation (G4). This involved the owners doing both strategic and succession planning for the business and establishing a Family Council. We have worked with several family businesses where there was a death by suicide of an heir. Helping these families understand and heal from such a tragedy was critical to their continued success.

How ACT helps families sustain and grow their wealth
Both psychological and economic theories frame our work. Our task is to resolve and restore breakage in relationships that block and prevent positive economic interaction, longevity and harmony in a family business and legacy family. The foundation of a good family is love and care, and the goal of a successful business is profit and return on investment. These can be in conflict in a family business and legacy family.

We define a family business as a company in which two or more family members hold a management, board or ownership position. We define a legacy family as a family unit or office that has $50 million dollars or
more in assets under management. Our work is influenced by six theories as we help families sustain and grow their wealth and at the same time, maintain personal and relationship harmony.

1. Love and money in a family business or legacy family are symbiotic and immiscible—they are connected but don’t mix together naturally. Love and money, what we call emotional economics, influences nearly everything in business and family relationships. There are no major emotional decisions without an economic dimension, and no major economic decisions without an emotional dimension. Pre-nuptial agreements are an example.

2. Family business and legacy family members must have “thick trust”. The first stage of psychosocial development is trust versus mistrust. We believe there are three types of economic trust. Exchange trust is the basic form, “trust, but verify”’, where we expect to be served and to pay for the meal we ordered. Mutual trust, “tit for tat”, is the most typical type of transaction in business, where we move in response to the first actor. Thick trust, long-term interactions and exchanges, is the only, but hardest, trust strategy for family members to avoid discord and have the advantage of effectiveness and speed. Negotiations are an example.

3. When emotions compete with economics, both lose. In many important decisions, the emotional tail can wag the economic dog. The oldest part of our brain is the emotional system. It evolved long before our economic system to help us survive. When our emotional system works in a healthy and mature manner it will provide a positive guide to decisions, when it malfunctions in business and economic decisions it will derail productivity, profit and reputation. Succession is an example.

4. A healthy endowment effect can turn into an unhealthy entitlement effect if not managed. Nearly every parent wants to endow his or her child with special opportunities. There is a thin line between endowment and entitlement. Entitlement happens when endowment expectations are not clearly defined and managed and financial gifts enable negative behaviours. Addiction is an example.

5. Every generation must manage their ‘commons’. The Boston Common, the historical park in downtown Boston, is an example of what economists call “the tragedy of the commons”. After 200 years of commercial use by many, it was closed because of overuse by a few. Affluent families and family businesses must have agreements on how to grow resources, limit extravagances and avoid rivalries and feuds that divide and destroy the common assets. Family constitutions are an example.

6. Parents must identity, understand and manage the dynamics of equality and equity, the ‘fairness monster’, among their children. Equality is identical apportionment and exact division of quantity. Equity is justice tempered by ethics and division based on contribution and need. One illustration is how the turkey is carved at the dinner table. Equality would mean that everybody would get the same size and type (white/dark meat) of turkey. Equity would mean that the carver would divide the turkey according to needs and perhaps even wants. Balancing these two dynamics in a legacy family requires the Wisdom of Solomon. Gifting and distributions are examples.

How love and money are mixed for the best possible outcome for families, businesses, and individuals is where the rubber meets the road. Relationships follow predictable, evolutionary life cycles that can either create advantage or discord. For legacy families and family businesses to successfully grow, share and transfer financial assets and social values, attention needs to be given, equally and systematically, to wealth, interpersonal, spiritual and human capital, what we call WISH™ investments.

Family wealth has a history of not surviving beyond the 3rd generation, called “shirtsleeves to shirtsleeves”. Dr. John Ward, professor at Kellogg School of Management and co-founder of Family Business Consulting Group, Inc., conducted a study on family business succession. He found that only 30% of family companies survive through the second generation, 13% survive through the third generation and only 3% survive beyond the third generation. Less than 5% continue through appointment of a successor from the next generation.

In one effort to answer the question of why the transfer of wealth in an affluent family is so problematic, Roy Williams and Vic Preisser, authors of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, interviewed members of families with net worth ranging from $5 million to over $1 billion. They asked questions about how the failed transitions of wealth differed from the successful ones. They found that the involvement of all family members in the decisions about the transition of wealth required both trust and communication skills, which helped avoid the dynamic of parents dictating the future to their children.

Conducting a quantitative assessment, Dr. Michael Morris, along with Roy Williams, Jeffrey Allen, and Ramon Avila, interviewed 209 family business owners from the second and third generations. Their report, “Correlates of Success in Family Business Transitions’” concluded that relationships within the family had the single greatest impact on the successful transition of ownership and wealth: The dominant variable in successful business transition appears to be family relationships. Family business leaders’ first priorities should be building trust, encouraging open communication, and fostering shared values among the family members.’

The work of Morris, Williams and Preisser reached the conclusion that the major causes of financial failure have more to do with psychological patterns in the family than with legal, financial or business planning. According to their research, 30% of legacy families are successful in transiting wealth, but 70% lose control of their assets.

• Success rate in legacy families (30%);
• Collapse in trust and communication in the family system (42%);
• Failure of parents to adequately prepare their heirs for creating and managing the wealth (17%);
• Lack of proper governance structure (8%); and
• Insufficient tax and legal planning (3%).

Both financial interest and interpersonal dynamics can be successfully managed when family leaders give systematic attention to the following four areas.

Alignment
Alignment in a family business and legacy family requires collaboration, coalition and movement to the same target. Family businesses are poised for long-term success when family members, owners, executives and employees have similar values and are united toward the same goals. The best companies are the best aligned. Strategy, purpose and organisational capabilities must be in sync. Without clear alignment family businesses are vulnerable. Even hairline cracks in the family business can widen and invite disaster.

On the one hand, family businesses are the source of family happiness; on the other hand, they can be the source of family heartbreak. Misalignment creates discord, tension and conflict. Alignment creates a process that reinforces the company strategy, increases family and organizational harmony and promotes accountability and profitability. Keep the focus on the business! Its success is what makes other things possible.

Boundaries
Like a Trefoil clover, family businesses have three components: the family, ownership and enterprise. Boundary skills determine how family members, owners, non-family executives and employees will interface for the advantage of the business. ‘Good fences make for good neighbours.’ Unclear boundaries are at the root of many of the problems in family business. Boundaries need to be clear and constantly maintained if they are going to do the job for which they were intended. In order to create and maintain good boundaries family business leaders must define roles, responsibilities and accountability for owners, managers and employees and methods for handling certain personal matters. Family members must not meddle in areas for which they do not have responsibility. When a business is large enough to hire family and non-family professionals, use outside advisors, and establish governing boards clear boundaries prevent conflicts of interest.

Communication
Communication is one of the recurring issues that owners and executives in family business identify as a major obstacle to productivity. In a business with more than 200 employees, about 14% of the working week is wasted because of poor communication between staff and management. In a family business, poor communication can turn into personal and professional conflict. It is a family’s ability to manage and resolve conflict that determines its maturity and emotional health. Communication is more than transmission of information; it is the interactional heartbeat of the organisation.

All communication is grounded in relationships. Unless we’ve been otherwise educated, most of us unconsciously enact styles of communication and conflict we learned in our families and carry them into the workplace. Whether it’s resolving relationship issues, confronting challenges, managing conflicts or planning for succession, effective communication skills guarantee that every situation will be addressed and resolved in a thoughtful, deliberate, constructive and comprehensive way. Clear, constructive communication must always be the goal.

Competency
Competence is about the maturity, fortitude and talent to be an effective leader and team member in the business and successful leader in the family. In a survey of directors serving on boards of family-owned businesses, only 11% reported that the company was effective at developing talent. From those making decisions in the boardroom to those carrying out the day-to-day operations, everyone contributes to the success of the business by knowing how to play his or her position at the highest level. You can’t afford people who are doing just OK. You need high performers.
Due to the unique and subtle connections in a family business, leadership and employment standards must be clearly defined, established, reinforced, and rewarded (or not) at every level in the company. This is critical in any succession plan and process. The family in business must understand sound business practice and how it is affected by family dynamics. Competency principles and procedures of leadership and employment improve the company culture.

Roles and responsibilities must be consistent with the company strategy and at the same time encourage every employee to have a personal feeling of ownership and investment, to think and act like a leader, and to give their best efforts. This entails attracting, training, retaining and rewarding talent, having the right people in the rights seats and the appropriate family members at the Family Council table.

MAPS for Men, A Guide for Fathers and Sons and Family Businesses (first person – Edgell)
MAPS for Men, A Guide for Fathers and Sons and Family Businesses (M4M) involves over forty years of studying male psychology and working with professional men, especially around the relationship between fathers and sons. I first presented a paper on this topic in 1995 at the Vienna Chief Executive Organization University.

Tom had a very successful career with a national business before starting his training firm. When Tom, who has a master’s in psychology, joined me at ACT, we decided we needed to work on our relationship before we worked with other fathers and sons on their relationships. M4M is one of the results. We are both a little intense and competitive, so it was an interesting and fulfilling process.

MAPS for Men is about how our relationships with our fathers shape much of our self-esteem and professional drive and how this impacts a family business. Interestingly, before writing M4M, I had never worked with a female CEO; since writing M4M I now work with two female CEOs.

Succession planning in a Family Biz
Succession in a family business is often the greatest challenge and it impacts many people, from family members to employees. We have been and are currently involved deeply in helping family business founders’ deal with what we call ‘succession anxiety’. David Bork, in his book, Family Business, Risky Business, identified the issue within a family business, “When succession is left to the whims of fate, the family’s empire begins to crumble under waves of emotion”. There are two succession paths, often walked at the same time, management succession and ownership succession.

On average, succession in a family company happens about every twenty years and can create a flood of anxiety, rumours and speculations. In the best of times, succession is a form of stewardship, where our legacy is not limited to what is accomplished in our lifetime, but extends in the hearts, minds and actions of those who follow us. One measurement, in the words of Ken Blanchard from his book, Lead Like Jesus: Lessons for Everyone from the Greatest Leadership Role Model of All Time, is “how well we have prepared others to carry on after our season of leadership influence is completed”.

The endgame and often the most challenging issue in a family business, is the process of transitioning ownership and management from one generation to another. Ivan Lansberg, co-founder of the Family Firm Institute and author of Succeeding Generations: Realising the Dream of Families in Business, emphasises the central problem, “the lack of succession planning has been identified as one of the most important reasons why many first-generation family firms do not survive their founders.” In our work, we address the father-son succession process in a family business as both a management and ownership issue.

Family financial, political and psychological anxieties can be roadblocks and barriers to succession development and execution. John Davis, an expert on family business management and lecturer at Harvard Business School, believes that family elders are appreciated for their wisdom, but not necessarily liked by all the relatives. “Leaders tell me that they have a gratifying but tough and often thankless job. Many successful family business leaders tell me that they spend half of their time working to address family and ownership issues and to maintain unity.”

It is a guarantee that tension will increase during what John Ward and Denise Kenyou–Rouvinez, in their book, Family Business Key Issues, call the “hot phase” of the succession process because of the intense work of combining emotions and economics. Customers, clients, non-family managers, financial institutions and family members can apply pressure. The tension can cause announcements, solutions and directions to be presented before issues are clearly defined and processed. How important decisions are handled and communicated will depend on the family and company culture developed over many years.
Relationships follow predictable stages that can either create advantage or discord. In healthy families, an endowment effect takes place the day a child is born, we give our children special emotional and economic attention simply because they are our children. When an adult child joins a family business this can carry over into the business in the form of an entitlement effect and a special position that can create tension in the family and the business.

Succession anxiety can come from many directions. The father-son team and their advisors, must manage not only the corporate process but also the relationship dynamics. A basic psychological rule is that the first thing to fall into a void, real or perceived, is anxiety. There are two types of anxiety. Normal anxiety, like fear, is essential to the human condition, proportionate to the threat, and disappears when the risk is adjusted or removed. Neurotic anxiety is unspecific, vague and attacks the core foundation of a person’s life.

Rollo May, a minister and one of the best known American existential psychologists, wrote in his book, The Meaning of Anxiety, “Anxiety is the apprehension cued off by a threat to some value that the individual holds essential to his existence.” Succession can be a time of anxiety, when a father is measuring how he lived his life and a son is planning how he will live his life. Spouses, siblings, children, employees and customers will often have an emotional and perhaps a financial stake in the process and outcome.

Working together in a family business can be a long trek of personal development and organisational transformation for a father and son. The succession hot phase can be like be a fork in the road or a mousetrap on a major highway. Relationship issues, like entitlement, parentage and nepotism, must be understood and managed. The primary skills needed, by both the father and son as they move through this process, are high trust and clear communication around ownership and management issues.

Succession benchmarks are driven by time. The first issue is the transition style of the founder/owner, the second is the selection of the next family business leader, (either family or non-family) and the third is in the task of transitioning resources and power to the next generation.

The first step in the transition and succession process is to define the retirement style of the founder/CEO to overcome a sense of impermanence and indispensability. Harvard Business School Professor, Dr. Jeffrey Sonnenfeld, interviewed executives from over thirty of the best-known corporations for his book, The Hero’s Farewell: What Happens When CEOs Retire. He concluded that many chief executives become like folk heroes within their organisation and depart (or not) in four ways.

• Monarchs – who do not leave until they are forced out or die
• Generals – who leave only when forced out, but plan a return to power
• Governors – who rule for a defined term, then pursue other ventures and interests
• Ambassadors – who leave willingly, then returns to a high advisor role

It is naturally tempting, but simplistically dangerous, for founding parents to direct, or coerce, their children into the family business or for children to assume a role in the business without maturity and autonomy. Every founder/parent needs to do a realistic assessment of what the business permanence, its economic potential, governance structure and management systems, would look like with one of more of his or her adult children in control.

Many younger generation members grew up in the business, doing summer jobs and listening to business conversations at the dinner table. This does not qualify them for a serious management role in the company. While blood may be a qualification for entry into the family business, adult children must have the following attributes in order to grow and succeed in the business. The founder parent is in charge of filling out the details on this list.

• Character: trust and communication
• Competence: education and performance
• Commitment: loyalty to the company and family
The question of when a family heir should start working in the family business is one we are often asked. There is no obvious answer. The life cycle between a family business leader and his or her adult child will have an impact on the decision.

Psychological development influences the business relationship between a father and son. John A. Davis, co-author of Generation to Generation: Life Cycles of the Family Business, earned a doctorate from Harvard Business School. Renato Tagiuri received his PhD from Harvard and completed the program in psychoanalysis at the Boston Psychoanalytic Institute, before teaching and writing extensively on the topics of management, leadership and family business.

Davis and Tagiuri used their business and psychological backgrounds to conduct a research project focused on the quality of the work relationship between a father and son. They identified and examined the respective life phases of the father and son based on Erik Erikson’s concept of life stages.
They concluded that the quality of the work relationship varies as a function of the respective life-stage development of the father and son. They presented their research in a paper entitled “The Influence of Life Stage on Father-Son Work Relationships in Family Companies.” At an early age, most sons admire and even worship their fathers. In a family business, this could be the beginning of a thirty-year journey resulting in the father also being the boss.

The successful long-term growth of a family business, as with every organisation, requires turning over power to a successor. Max Weber, the German sociologist, referred to this process as the institutionalisation of charisma and saw it as one of primary challenges of leadership.

Succession in a family business is a process not an event. In the best-case situations, it is a 3-5-year process, where a strategy is in place before the tension or crisis of transition. This requires a realistic assessment of the skill level of their candidates for handling the wealth or business, pragmatic discussion with all involved family members, practical involvement of senior management and balanced advice from outside legal, financial and business advisors.

The paradox is that only a few family companies give serious attention to the task of handing the business down to the next generation. Resistance factors can come from the founder, family owners, senior management teams and/or family members.

The second step of succession—outlining if, when and how a successor from the family will be the next leader—can be a time of celebration or challenge. The heir should be graded against these twelve ideal standards.
1. Innate interest in the business (pre-teens)
2. Natural leadership abilities in the family and school (teens)
3. Exposure and work in the company (late teens)
4. Excellent education and training experiences (early 20’s)
5. Apprenticeship in similar industry (middle 20’s)
6. Success in a comparable business (late 20’s)
7. Desire and commitment to join the family business (early 30’s)
8. Successful progression through different department (mid 30’s)
9. Senior managerial responsibilities (late 30’s)
10. Partnership with the company CEO (early 40’s)
11. Executive and personal leadership respect in the family and company (40’s)
12. Mature succession, the ‘de facto leader’ (mid 40’s)

It is important to determine the qualifications of the successors and to avoid the trap of an inadequate successor, from within or outside the family, such as the following persons.

• Good Son – a person with family loyalty, but limited leadership skills
• Loyal Servant – a conscientious helper, but impotent leader
• Watchful Waiter – a good performer, but with inadequate executive abilities
• False Prophet – a talented person, but with the wrong expertise
• White Knight – an exceptional leader, but with limited commitment to the business

The third step is to create a successful succession. In a family firm this will have four stages.
1. Owner-Management Stage – father is the only family involved in the business
2. Training and Development Stage – the son learns the business
3. Partnership Stage – father and son share percent of ownership and management
4. Power Transfer Stage – responsibilities and control shift to the successor

When family leaders and members work well together in the family and the family business, they can promote a level of leadership transition, company loyalty, brand commitment, long-range investment, effective decisions, rapid action and stewardship impact for which nonfamily businesses yearn, but seldom achieve.

Though we have been involved with many families at their most intense levels, we have never been fired from a case and only once left a case unresolved. The feedback we get is that we are genuine and pragmatic. As financial success increases in a family the relationship complexity and intensity also increases, thus we have worked with some clients over several years.

We are a small consulting firm in a mountain resort town. Professional relationships are key to our success and how to scale is always a challenge.

Company: Aspen Consulting Team, LLC
Name: Edgell Franklin Pyles, PhD Thomas Edward Pyles, MA
Email: [email protected]
             [email protected]
Web Address: www.AspenConsultingTeam.com
Address: Box 503, Snowmass, CO USA 81654
Telephone: Edgell +1 970-948-1415, Tom +1 303-518-3520

Strategic Governance for Family Offices: Why Do It and How to Approach It
Family OfficesWealth Management

Strategic Governance for Family Offices: Why Do It and How to Approach It

Amelia Renkert-Thomas, Co-founder of family business consultancy Withers Consulting Group, outlines the need for governance and the different approaches family offices can take to it, in partnership with the Family Office Association.

Governance, at its most basic, is a system for decision making. Every organisation, from single family offices to multinational businesses, needs some level of governance.

For a family office, effective governance has the following benefits:
– It promotes the shared purpose of the family and helps the office to achieve the family’s vision of success while acting in accordance with the family’s values;
– It can be scaled up or down in line with the complexity of the family, the assets, the clients and the services;
– It creates accountability and so ensures that the family office abides by relevant laws and regulations;
– The governance structure helps to manage risk and complexity while promoting efficient decision-making and transparency;
– The structure operates as designed even in times of extreme stress and conflict.

Many single family offices work effectively with natural governance, where informal decisions are made as and when they are needed. A family office without formal structures, written policies and procedures for making decisions does not lack governance. It simply uses the system of “the way we do things around here”.

Other family offices, particularly those which are more complex or change in a way that makes decision-making more difficult, require a more formal method to ensure that they operate effectively. The respective rights and responsibilities of three separate and distinct groups will need to be clarified. Each will see the family office from a different perspective, having its own needs and objectives:

– Clients look for the family office to provide appropriate investments and/or financial, reporting, tax and admin services. They are concerned about return on investment, timeliness, accuracy, compliance, privacy and risk management. Clients want to make sure that the cost of delivering these services is reasonable and fairly allocated among the various clients
– Members of the management group, who run the family office on a day-to-day basis, have much the same interests as other senior executives. They seek appropriate compensation with upside bonus potential, a safe, efficient and comfortable working environment, the right staff, equipment, third-party relationships and the budget to accomplish the work, the right balance of responsibility and authority, and opportunities for job and personal advancement

– Family members expect the family office to provide services in a way which supports, not hinders, the family’s shared purpose and promoted family legacy and values. They want the family office to make their lives simpler and to enable them to reach their own individual goals

There are simply not enough resources in family offices to satisfy all the wants and needs of each group. As a result, conflict at some stage or other is highly likely.

It doesn’t have to be damaging, though. The different perspectives, needs and objectives of each group can create the energy that, properly harnessed, will make the single family office more successful. The point is to design a decision-making or governance system that will promote optimal intra-group or inter-group decision-making to resolve conflicts effectively and achieve the strategic objectives of the family office.

Natural governance
Natural governance can be efficient and effective, particularly when a small group with common background, values and objectives work together. It is particularly common in smaller family offices where a charismatic individual founded the venture and controls it. But as the family grows and its structures become more complex, it can be very difficult to maintain a natural governance system. New employees, spouses and next gen family members don’t have the background, experience or tacit knowledge to understand ‘the way we do things around here’.

While nimble and adaptable, natural governance can be prone to catastrophic failure when circumstances change. Generally speaking, natural governance will fall short and a more formal governance system will be needed when a larger, more diverse group seeks to exercise joint control and decision-making over the family office. This situation typically arises as the family and the family office grow more complex over time.

Formal governance
Designing a more effective governance system for family offices is a four-step process:
1. Understand the Shared Purpose of the family
The Shared Purpose of a family is a combination of the family’s vision for the future, it’s plans for achieving that vision, and the individual life aspirations of family members, all shaped by the family’s values. No two families have the same Shared Purpose, hence the saying “If you’ve seen one family office, you’ve seen one family office”.

2. Understand the complexity of the family office
The more complex the family office, the more important formal governance will be. This is because the nuanced and unspoken rules that make up a natural governance system, will tend break down as multiple decision-makers try to make complex interlocking decisions. Decisions such as ‘how much liquidity should be maintained at all times?’ implicate management, clients and family; to be made effectively, will require balancing the short and long-term needs and interests of all three groups.

3. Determine appropriate governance structures and policies that suit the shared purpose and complexity
Governance structures and practices need to be formal enough to allow the family office, clients and family to make effective decisions about the assets being managed, but not so formal that decision-making bogs down. Generally, the more complex the family and its assets are, the more structure will be necessary.

4. Implement the new system, including feedback systems to ensure organised accountability
In an effort to design better governance, more than one single family office has adopted a handful of so-called ‘best practices’, written them up in a manual and thrown the manual on a shelf. Those family offices that follow this path are often surprised when conflict resurfaces and everyone in the system reverts to their old patterns instead of following the practices in the manual. ‘Best practices’ are a good starting point, but they are rarely specific or targeted enough to handle the particular circumstances that a family office finds itself in. If instead, family, clients and management have worked together to design a governance system that will fit the family’s Shared Purpose and the complexity of the family office system, the odds of success will increase.

For appropriately situated families seeking greater control and co-ordination over the management of their affairs, a family office can be a valuable tool. However, establishing a family office is only the first step of what should be viewed as an ongoing process, rather than a permanent fix. Much as you would never expect a ten-year-old child to fit into the shoes he wore when he was five, governance that was sufficient in a family office’s earlier years, can’t be expected to function effectively as it evolves and becomes more complex.

Reassessing the suitability of the family office’s governance over time, based on its ability to satisfy a family’s shared purpose and degree of complexity, is key to ensuring that a family office’s benefits are optimised. Designing effective governance requires an understanding of each family’s unique and changing circumstances, and a departure from the notion that ‘best practices’ are always best.

Bridging the Family Business Generation Gap
Family OfficesWealth Management

Bridging the Family Business Generation Gap

The results of new research by PwC, talking to more than 200 family members likely to take over family businesses in 21 countries worldwide, looks specifically at the issue of succession and how family firms prepare for these changes.

The report identifies three areas where a mis-match of styles, ambitions and plans could cause difficulties for UK family businesses which account for over 9 million jobs, around UK £80bn in annual tax receipts and nearly a quarter of
total GDP.

The generation gap

Henrik Steinbrecher, PwC global middle market leader, says: “The world has changed out of all recognition since the current generation took over, and the pace of change can only accelerate in response to global megatrends like demographic shifts, urbanisation, climate change and new technology.

“The handover for ‘first generation’ businesses – those making the transition from start-up venture to family firm – is commonly the most fraught. Of those taking over under these circumstances; 20% say they’re not looking forward to running the business, compared to 8% for respondents as a whole.”

The credibility gap

Bearing the family name can work against the next generation. 88% say they have to work harder than others in the firm to ‘prove themselves’. 59% consider gaining the respect of their co-workers is the single biggest challenge they face.

Promotion to CEO is no longer automatic for the next generation, with a growing number of family businesses being prepared to make tough succession decisions. The survey revealed that 73% said they were looking forward to running the business one day, but only 35% thought that was definite, and as many as 29% thought it at best only fairly likely.

The communications gap

There’s a tendency for some in the older generation to overestimate how well they have run the business, while underestimating their children’s capacity to do this as competently as they did.

Sian Steele, PwC partner and family business specialist in the UK, says:

“Members of the current generation often comment that their children aren’t sufficiently entrepreneurial and aren’t prepared to put in the long hours they did to build the business while, down the hall, their children are wishing their parents would embrace new technology and new ideas.

“This sort of impasse can slow down decision-making and lead to the phenomenon of the ‘sticky baton’, where the older generation hands over management of the firm in theory but in practice retains control over everything that matters.”

The survey reveals that as many as 64% think the current generation will find it tough to let go.

Steinbrecher concludes: “Firms that manage succession well are those that plan many years ahead – ideally, five to seven years in advance – accompanied by ‘sensible conversations’ that address roles, responsibilities, and timings.”

Download the full report at www.pwc.com/nextgen 

 

Service Delivery Trumps Offerings says Study
Family OfficesWealth Management

Service Delivery Trumps Offerings says Study

The Family Office Exchange (FOX) asked a select group of industry-leading advisors and sophisticated family office executives to identify the hallmarks of state of the art advice in various disciplines of family wealth management at the 2013 FOX Thought Leaders Council Summit.

The respondents reported that how services are delivered, rather than service menu, is the biggest differentiator for leading firms.

The report, titled “The State of the Art in Family Wealth Management,” identified the following as the hallmarks of state of the art wealth management:

– A tendency to ask why before asking how – State of the art advisors approach their work by first ensuring that they understand their clients’ goals

– Communication with the goal of understanding – State of the art advisors communicate strategically and proactively, anticipating their clients’ needs, with regular frequency, as well as responding to on demand requests

– Understanding how all the pieces fit together – State of the art advisors proactively understand the roles and strategies of the other advisors who are on the team and know how and where their strategies impact one another

– Promoting teamwork among advisors – State of the art advisors understand the value of teamwork and actively work to put it into practice in the way they work with their own staffs, with their clients, and with other advisors.

“Our primary intention with this report was to perform a gap analysis and identify the needs of ultra-wealthy that weren’t being met in today’s private wealth management industry,” says FOX Executive Director of Market and Content Development Amy Hart Clyne.

“Interestingly, the study revealed that there is not a services gap. It is how rather than what services are delivered that separates best practice from common practice.”